US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Inflation expectations and CPI readings continue to show disinflation with the last two Core CPI M/M figures coming in at 0.16%.
- The US PMIs missed expectations across the board last week.
- Fed Chair Powell’s speech at the Jackson Hole Symposium was mostly in line with what he said previously but he stressed on the need to be careful going forward and that continued strength in the labour market may require further rate hikes.
- The first half of the week saw US Job Openings and Consumer Confidence reports missing expectations by a big margin, followed by a miss in the US ADP data and a beat in the US Jobless Claims.
- The market doesn’t expect another hike from the Fed anymore, but a lot will depend on the data going forward.
Japan:
- The BoJ kept everything unchanged as expected at the last meeting but implicitly tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%.
- The Japanese CPI data surprised to the upside recently with the core-core reading reaching again the previous high.
- The Tokyo CPI, which is seen as a leading indicator for national cpi, missed expectations, but the core-core reading matched the prior figure remaining well above the BoJ’s inflation target.
- The Unemployment Rate surprisingly jumped to 2.7% although it remains near the lows.
- BoJ’s Governor Ueda at the Jackson Hole Symposium reaffirmed that inflation is still below target and that’s why they’re sticking with their monetary easing. This was also echoed by other BoJ members, but they are starting to see the light at the end of the tunnel.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that after breaking out of the 145.00 resistance, the USDJPY pair started to range as the US economic data started to surprise to the downside. The price is now testing the red 21 moving average near the support level, and we should see the buyers stepping in here to target another higher high. A break below the support would invalidate the bullish setup and open the door for a fall into the 142.00 handle.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we recently got a fakeout above the 146.56 resistance as the price rallied after the breakout and then sold off following the big misses in the US Job Openings and Consumer Confidence reports. We can also notice that we’ve been diverging with the MACD for a long time, and this is generally a sign of weakening momentum often followed by pullbacks or reversals. So, the bias is more skewed to the downside, and we will need the price to break on either side of the range between the 146.56 resistance and the 145.00 support to give us a more clear direction.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is forming a falling wedge pattern near the support level and it’s also diverging with the MACD. This is a bullish signal, and the first target should be the resistance at 146.56. So, we are stuck in this range until a fundamental catalyst causes a clear breakout and leads to a sustained and strong move.
Upcoming Events
Today the market will be focused on the main release of the week: the US NFP report. We will also have the US ISM Manufacturing PMI an hour and a half later, but the labour market data is the priority right now. A bad reading is likely to weaken the US Dollar as the fall in Treasury yields as a consequence should give the JPY a boost. On the other hand, a good reading is likely to be linked with the soft-landing scenario and keep Treasury yields high ultimately supporting the greenback. Overall, it’s a mixed picture at the moment as the Fed is expected to pause at the September meeting and we might get much worse economic data before the next meeting in November, so we might see more choppy price action going forward unless the data shows big surprises.
See also the video below